The penalty is the higher of these two amounts:
2.5% of your income above your filing threshold or
$695 per person. If you have kids, the penalty is $347.5 per kid in addition to the $695 penalty for adults. The maximum penalty per family using this method is $2085.
The penalty is collected on your tax return. This means that it would reduce your refund or increase the amount that you owe to the IRS.
For example, if you're single, your filing threshold in 2016 is $10,350. If you made $27,000 in 2016 your penalty would be $695, which is the greater of $416 (2% of 27,000 - 10,350) or $695.